Pearl River We started getting notices from a CPA who advises us on some matters in late 2024 about whether in our family of organizations there were the kinds of companies that would need to be ready and able to file ownership reports under the new Corporate Transparency Act (CTA) by January 1st, 2025. At first, muddling through, as we do in some many of these kinds of issues, we replied that all of them were nonprofits of various shapes and sizes, so we didn’t think so.
A couple of days later, as the fog cleared, I asked if that included L3C registrations that were social enterprises, which is a special Louisiana designation, where we were reportedly the first registrant, and stands for Low-Profit Limited Liability Companies. Get it? Three Ls and a C. This is available in only a handful of states. When we prepared to purchase Fair Grinds Coffeehouse fifteen years ago and got ready to register ACORN Global Enterprises (AGE), my wizard brother discovered that this status existed, and under its simple terms, away we went. That whole deal was meant to take 5 to 10% of the gross to fund organizing, so we could guarantee low-profit from a fair trade coffee operation. Since most of it was financed from my share of the distribution from the termination of ACORN’s joint employer retirement fund, AGE seemed a good name all around. Since we were buying something from a company called Elephant Ear, it almost seemed a step-up.
Our part-time bookkeeper, Jeff Karlson, an old ACORN hand, went back and forth on this with the accountant, mentioning that he thought it had all been delayed by some legal maneuvering, which turned out to be right. There was an injunction from some cherry-picked federal district court in Texas that had pushed back the filing based on a petition from more than twenty largely red state attorneys general. An appeal has now been filed by the Justice Department representing FinCEN, the Financial Crimes Enforcement Network, with Supreme Court Justice Alito, to void or narrow the injunction with a decision coming soon.
As trivial as all of this is for our little social enterprise outfit, this is really a big deal, which accounts for all of the big-league brouhaha. The CTA finally will remove the corporate veil of hidden ownership of companies. The act was originally passed on a bipartisan basis on January 1, 2021 as part of the National Defense Authorization Act to be an enforcement tool for anti-money laundering laws and is intended to help prevent and combat laundering, terrorist financing, corruption, and tax fraud, which most of us would say is a good thing.
In our little piece of the world we were excited when it passed, even if the implementation time would take years, because ACORN was organizing tenants in Atlanta during the pandemic. It was virtually impossible to really determine the ownership of these huge complexes concealed by various shell companies and investment vehicles. Having the beneficial ownership become transparent would be wildly clarifying and critical for all tenants.
That’s us, of course, but why all of these states are in a snit and want to aid and abet tax fraud, money laundering, and the like is beyond me. Reading between the lines, it seems this is one of those small business issues de jour, which fires up the small town and conservative base. The main lawyer claims this is “a violation of the Fourth Amendment prohibiting unreasonable searches and seizures by the government and is an action the federal government doesn’t have authority to impose.” That argument seems far-fetched, but going before Justice Alito, I guess they think it’s right in his wheelhouse, so who knows.
Even with the injunction, FinCEN reports that a lot of companies are filing voluntarily. Folks with private equity are even saying this is no sweat and helpful. It’s not that burdensome. The paperwork is straight forward. We desperately need corporate transparency, so keep your fingers crossed that we can finally get it.